Muthoot Finance, the largest gold loan non-banking finance company (NBFC) in the country, is set to tweak its business model while filing the draft red herring prospectus (DRHP) after factoring in the Reserve Bank of India’s (RBI’s) recent directive on gold loans.Recently, RBI notified that bank credit to NBFCs giving loans to individuals and other entities against gold jewellery would not be treated as exposure to the priority sector. The move is expected to impact the borrowing cost of these companies, which account for more than 32 per cent of the Rs 80,000-crore gold loan market in India, as regular loans are costlier than priority sector loans. Moreover, as these loans will not enjoy priority sector status, the pace of securitisation or assignment to other banks will also fall, which may hit these NBFCs. Selling receivables was one of the main source of capital for these NBFCs. It also helped banks meet priority sector taragets.
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